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Resilient Demand and Strategic Upgrades Drive XOM's Refining Success
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Key Takeaways
ExxonMobil's refining segment is posting gains as strong margins support overall earnings growth.
XOM said margins improved due to lower crude feedstock costs and tighter product supply from outages.
ExxonMobil is streamlining refineries & upgrading output, turning low-value products into higher-value fuels.
Exxon Mobil Corporation (XOM - Free Report) , an integrated energy giant, has a presence in several business segments, including upstream, refining and chemicals. XOM’s refining business has reported significant gains on the back of strong refining margins this year. The gains from its refining segment have supported earnings growth in the third quarter.
ExxonMobil stated that refining margins have strengthened due to two major factors: cheaper feedstock resulting from lower crude prices and the tightening of product supply caused by refinery outages and supply chain disruptions. In line with the resilient demand for petroleum products, ExxonMobil has focused on high-grading its refinery network while making investments in high-quality sites that have lower costs and diverse product offerings. Therefore, the company now operates fewer refineries that are efficient at converting raw crude into high-value petroleum products. This ensures that its refining system can remain competitive across various market cycles.
Apart from streamlining its refinery network, the company has also invested in upgrading the output from its refineries. In its latest earnings call, the company stated that it is taking the least valuable products from raw crude and investing in the conversion capacity to deliver high-value products. The Singapore CRISP project is a recent example of these initiatives, in which XOM took extremely low-value products like residue and fuel oil and converted them into high-value, profitable products such as lubricant base stocks and additional diesel using a proprietary new-to-the-world process.
ExxonMobil’s focus on high-grading its refinery system and investments in upgrading refinery output should enable it to remain competitive across market cycles.
PSX & VLO Are Two Other Leading Refiners
Phillips 66 (PSX - Free Report) and Valero Energy Corporation (VLO - Free Report) are two leading refining players expected to benefit from strong refining margins. Both PSX and VLO sport a Zacks Rank #1 (Strong Buy).
Phillips 66 operates 11 refineries across the United States and Europe. The company recorded a 99% crude utilization rate in the third quarter, the highest since 2018. Its refining results benefit from strong refining margins seen this year. Further, its involvement in other segments, including midstream, renewables and chemicals, provides earnings stability.
Valero Energy boasts an extensive refinery network, with 15 refineries, and a combined throughput capacity of 3.2 million barrels per day. VLO’s diversified refinery base enables it to tap into different markets and cater to a diverse range of customer needs.
XOM’s Price Performance, Valuation & Estimates
Shares of ExxonMobil have risen 12.4% over the past six months compared with the 11.2% increase of the composite stocks belonging to the industry.
Image Source: Zacks Investment Research
From a valuation standpoint, XOM trades at a trailing 12-month enterprise value to EBITDA (EV/EBITDA) of 7.85X. This is above the broader industry average of 4.88X.
Image Source: Zacks Investment Research
The Zacks Consensus Estimate for XOM’s 2025 earnings has been revised upward over the past 30 days.
Image: Bigstock
Resilient Demand and Strategic Upgrades Drive XOM's Refining Success
Key Takeaways
Exxon Mobil Corporation (XOM - Free Report) , an integrated energy giant, has a presence in several business segments, including upstream, refining and chemicals. XOM’s refining business has reported significant gains on the back of strong refining margins this year. The gains from its refining segment have supported earnings growth in the third quarter.
ExxonMobil stated that refining margins have strengthened due to two major factors: cheaper feedstock resulting from lower crude prices and the tightening of product supply caused by refinery outages and supply chain disruptions. In line with the resilient demand for petroleum products, ExxonMobil has focused on high-grading its refinery network while making investments in high-quality sites that have lower costs and diverse product offerings. Therefore, the company now operates fewer refineries that are efficient at converting raw crude into high-value petroleum products. This ensures that its refining system can remain competitive across various market cycles.
Apart from streamlining its refinery network, the company has also invested in upgrading the output from its refineries. In its latest earnings call, the company stated that it is taking the least valuable products from raw crude and investing in the conversion capacity to deliver high-value products. The Singapore CRISP project is a recent example of these initiatives, in which XOM took extremely low-value products like residue and fuel oil and converted them into high-value, profitable products such as lubricant base stocks and additional diesel using a proprietary new-to-the-world process.
ExxonMobil’s focus on high-grading its refinery system and investments in upgrading refinery output should enable it to remain competitive across market cycles.
PSX & VLO Are Two Other Leading Refiners
Phillips 66 (PSX - Free Report) and Valero Energy Corporation (VLO - Free Report) are two leading refining players expected to benefit from strong refining margins. Both PSX and VLO sport a Zacks Rank #1 (Strong Buy).
Phillips 66 operates 11 refineries across the United States and Europe. The company recorded a 99% crude utilization rate in the third quarter, the highest since 2018. Its refining results benefit from strong refining margins seen this year. Further, its involvement in other segments, including midstream, renewables and chemicals, provides earnings stability.
Valero Energy boasts an extensive refinery network, with 15 refineries, and a combined throughput capacity of 3.2 million barrels per day. VLO’s diversified refinery base enables it to tap into different markets and cater to a diverse range of customer needs.
XOM’s Price Performance, Valuation & Estimates
Shares of ExxonMobil have risen 12.4% over the past six months compared with the 11.2% increase of the composite stocks belonging to the industry.
From a valuation standpoint, XOM trades at a trailing 12-month enterprise value to EBITDA (EV/EBITDA) of 7.85X. This is above the broader industry average of 4.88X.
The Zacks Consensus Estimate for XOM’s 2025 earnings has been revised upward over the past 30 days.
Image Source: Zacks Investment Research
XOM currently carries a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank stocks here.